This Week
This week saw odds of a Federal Reserve rate hike at the end of the month fall from 70% to 20%. The reasons being:
- Fed voters said as much (in “Fedspeak”). New York Fed President John Williams said there’s “no need for urgency,” while Fed Vice Chair Philip Jefferson said the Fed may need “more time” to decide on “any future [rate] adjustments” – both essentially saying they support a pause in October.
- The labor market is softer than expected, adding just 29,000 jobs in September. That’s well below expectations for 81,000 jobs added, and the last couple months were revised lower by 60,000 jobs. Still, the labor market isn’t exactly weak, with the three-month average gain stable at 50,000 jobs.
- Headline and core PCE inflation were lower than expected in August. Headline PCE inflation was unchanged at 3.4% year-over-year (YOY) , while core PCE inflation was unchanged at 3.0% YOY – both 0.3 percentage points below expectations. Though these are “unchanged” from revised numbers after methodological changes led to a bigger-than-expected 36-basis point (bp) decrease in July core inflation.
The change in rate-hike expectations arose despite other data suggesting the economy is stronger than previously thought. Namely, real consumer spending grew 0.6% in August – above expectations for 0.5% growth – and second-quarter real GDP growth was revised up to 2.2% from 1.5% on stronger spending and business investment.
With rate-hike odds easing and the economy looking resilient, the Nasdaq-100® is up 1% this week to a new record high, even as 10-year Treasury yields rose over 10bp to nearly 5.3% (and reached as high as 5.34% – their high since 2002).
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Next Week
Here are the top events I’m watching next week:
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Monday: ISM & S&P Services PMIs (September)
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Wednesday: Fed Minutes (September)
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Thursday: Jobless Claims (week ending Oct. 3)
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Friday: Consumer Sentiment (October Preliminary)